The most surprising performance among asset classes this year has to be from sovereign bonds, specifically US Treasuries: after all, it was a near-certainty among economists that the Federal Reserve’s tapering of QE3 would reduce demand and send interest rates soaring. 2014 has produced anything but that case, and the US Dollar’s resiliency has been put to the test as a result.

In fact, the 10-year US Treasury Note yield has dropped to its lowest level since October 2013, in the wake of the US government shutdown:

Forex Technical Analysis: 10-year US Treasury Note Yield Chart (D1)

The flattened yield curve over the past several weeks has been the biggest obstacle the US Dollar has faced, particularly with respect to the USDJPY: whereas US equity markets just traded to fresh 2014 and all-time highs, USDJPY has been pinned in a range between ¥101.20 and 103.05 for the better part of the last three months.

Forex Technical Analysis: USDJPY Chart (D1)

- USDJPY remains mostly disconnected from US yields, insofar as the drop in yields would suggest that the USDJPY should be trading lower, near if not ¥100.75.

- In the short-term, the post-NFP high near ¥103.05 should cap gains; a pivot through this level would represent a significant turning point for USDJPY. It is thus an appropriate reference point for managing risk.

- Former support near ¥101.20/30 is currently being tested, which if broken would allow for a move towards the yearly low, ¥100.75.